IVA Plan: A Guide
Individual Voluntary Arrangement, commonly known as IVA, is a legal and formal arrangement between a debtor and creditors. It gives you space and time to pay back your debts in a specified period of time. With an IVA you get the flexibility to repay your unsecured debts.
What is an IVA?
It is a legal method you can use to pay your debts back to your creditors over a certain period of time. It gives you the flexibility and affordability to pay all your debts under one management plan, using legal means in reducing your debts as it was passed by the UK government.
To make your IVA a legal agreement, it has to be carried out by a qualified individual. This person is referred to as an Insolvency Practitioner (IP), which can be an accountant or a lawyer.
If you are based in Scotland you won’t be able to apply for an IVA as it is exclusive to England, Wales & Northern Ireland. However, a Trust Deed is the Scottish equivalent.
How does an IVA work?
An IVA plan is structured to enable you to pay more to your creditors than it would be possible with bankruptcy. Since this is a mutual agreement with your creditors, you will have more control over your finances unlike in a bankruptcy.
You get a leeway to propose how your assets’ equity will be introduced into the debt settlement arrangement. You are not coerced to sell your property as it happens with bankruptcy. In a nutshell, you are in a position to bargain over your debt repayment, and that is one reason that makes IVA a viable option for those deeply stuck in debts.
For the agreement to be carried out as per the law, you should work with a certified Insolvency Practitioner (IP). As said earlier, it could be an accountant or a lawyer with immense experience and training in insolvency law. The IP is charged with the responsibility of conducting the IVA according to the law and making sure each party upholds their end of the bargain.
For the IVA to be legally binding it has to be supported by at least 75% of debt value for those who vote for it. No creditor, even those who voted against your IVA can take any further legal action for the unpaid debts. Your debts are cushioned both legally and formally for the entire IVA period.
Furthermore, your creditors are barred from charging any more interest on the outstanding debt balances. No one has the authority to add any kinds of charges and costs to your debt. Your IVA plan is in full force and the terms and conditions have to be followed to the letter.
Normally, an IVA lifetime lasts for 5 years. If you have an equity clause as part of your deal, you can extend the IVAs lifetime by 12 months. In other cases, it is possible to have a one-time payment IVA. In correct terms, it is referred to as lump sum IVA or full-and-final settlement IVA.
Once the lifetime of your IVA expires, all your outstanding debts are written off. It does not matter that you have paid only a fraction of your original debt; the end of an IVA means you are free of any unsecured debts.
Can anyone apply for an IVA?
No, is the short answer.
You have to meet the following criteria before you can be considered for an IVA plan.
- You must have unsecured debts, in excess of £6,000
- 2 or more creditors (there are a number of debts which cannot be considered for an IVA).
- You would need to be employed, self-employed or a retiree.
- You need to be able to pay back a minimum of £70 pound a month after all other house expenses.
What are the steps in starting an IVA?
You will need to get in touch with a debt solution specialist – they will then be able to start the process for you.
- The first step would be a qualifying call with the specialist, who would determine whether you were eligible for an IVA plan or whether you would be better suited for a different debt solution.
- If you qualify for an IVA the specialist would require you to provide some paperwork to prove that what you are telling them is in fact the truth. This might include bank statements, utility bills and proof of debts.
- Once the specialist has received this information the specialist would pass your information over to the Insolvency Practitioner who would then further qualify your information – making sure that they can work with your case.
- Working with the debt specialist and the IP you would then agree on what is a manageable monthly repayment
- The IP would then begin negotiating with your creditors to get your debts reduced.
- Upon a successful negotiation you would then begin to pay back your debts via the IP, who would distribute your debts to your creditors as agreed int the terms of your IVA.
Note: It is important to understand that all those involved with the setup an IVA would be paid a fee for their services. This fee would be taken from your debts that have been negotiated.
Important things you should know before applying for an IVA
For a landlord or homeowner, your property will be attached as part of the agreement. This is called an equity clause and you have to comply with it before your application goes through.
Using your name for the agreement means you will be listed in the register for Public Insolvency. What this means is that your name and insolvency status can be viewed by any member of the public. Nevertheless, the agreement is categorised as a private matter between you and your creditors. Your employer does not get this information, and your insolvency will not be a press advertisement as typical with a bankruptcy.
By entering into an IVA agreement, your credit score takes some considerable heat for the next 6 years right after the agreement is confirmed.
For the entire term of your agreement, you are voluntarily asked to refrain from taking out any more credit.
Is an IVA the right solution to your debt burden?
An IVA is one of the many options to get you out of the deep pit of debts. It depends on the kind of situation you find yourself. What is true about an IVA is that it offers a flexible method to repay your debts and still have some control over your financial affairs. However, it is expensive and comes with a number of risks. Some of these risks include:
- Your pension and savings will be used as part of the repayment agreement
- For homeowners, you will have to seek a remortgage
- Its success is pinned on the majority vote of your creditors
Just like with any other debt settlement solution, you should not take an IVA at is face value. Take time to understand what you are walking into. If you feel like this is the way you want to follow, go for it.
Flexible debt solutions works as an intermediary. If you are looking to apply for an IVA through our site, we will assess your credentials and pass you onto a debt specialist suited to your needs – who will pay us a fee on introduction.